The Cow-Calf Manager

Livestock Update, July 2006

John B. Hall, Extension Animal Scientist, Beef, Virginia Tech

What Does Value-Added Beef Production Mean for the Cow/Calf Producer?
Part 1 - Adding Value to Feeder Calves

Recently, considerable interest, discussion, articles, and programs have focused on various value-added beef production opportunities. Valued-added beef production means different things to different people. Quite simply, value-added is as a procedure or process that increases the value of your product to the customer for which they are willing to pay additional money.

We have many customers of the Virginia Beef Industry. Being a cow/calf and stocker state, our primary customers are the cattle feeders and beef packers. As a segment of the US beef industry, the US consumer is our ultimate customer. In addition, the predominant genetics of Virginia cattle give them the potential to meet the needs of the high quality export market.

A majority of beef producers could participate in value-added programs and increase returns to their operation. Value-added opportunities in Virginia range from low risk, moderate input, moderate potential return programs such as Virginia Quality Assured Feeder Cattle (VQA) to high risk, high input, high potential return programs such as direct marketing of pasture fed beef. Let’s take a look at how to get started in several value-added marketing programs.

Deciding on a program
Producers need to honestly assess their current operation, and ask several questions relative to the future direction of their operation before seeking a value-added production/marketing option. Producers should review:

• Length of the calving season
• Uniformity of calf crop and weaning weights
• Genetic composition of cows and current herd sires
• Current feed resources and grazing management
• Herd health practices and records system
• Facilities
• Time and ability available for management

Questions should include:

• What products am I producing now? Unweaned calves? Backgrounded calves? Finished cattle?
• What would I like to be producing?
• What amount of change in management practices am I willing to undertake?
• Do I have sufficient reserves or cash flow to defer income (or partial income) for 6 months to a year?
• How much risk verses potential reward am I willing to bear?

Certainly, this list of questions or items to review is not exhaustive, but it is a place to start.

The next step is to review programs that are available and their requirements as well as risk verses potential reward. Programs fall roughly into five areas: Certified Feeder Cattle, Product Specified Feeder Cattle, Retained Ownership, Pasture to Plate Alliances, and Direct Marketing.

Types of programs
Certified Feeder Calf Programs - These programs usually have specific health and weaning criteria for calves. Some may also have source and age verification requirements. Specific genetic requirements (EPD requirements or breed composition) are also part of some programs. The goal of these programs is to add value to the cattle by minimizing illness in the feedlot and improving growth rate. In general, these are the best initial value-added programs for producers. Many other value-added programs build on this level of management.

The most familiar example of a certified feeder calf program in Virginia is the VQA (Virginia Quality Assured) Certified Feeder Calf program. The base of this program is a health program that completes all vaccinations for bovine respiratory complex (IBR, PI3, BVD) as well as other respiratory diseases a minimum of 14 days before sale. Other levels of the program include calves weaned and preconditioned for 45 days and/or sired by bulls that excel in growth as indicated by yearling weight EPD. The VQA program is a cooperative effort between the VA Cattlemen’s Association, VA Cooperative Extension, and VA Dept. of Agriculture. Other similar programs are administered by animal companies, breed associations, and marketing groups; examples include Vacc-45, Sure-Health™, Select-Vacc®, and CHP-45.

Do these certified feeder cattle programs add value to cattle? Over the 9 years of the VQA program, premiums have averaged over $27 per animal for the 48,800+ animals marketed in the program. The table below shows the increased gross revenue for calves marketed during 2005 in the VQA program compared to those sold the same week in special graded sale. Costs to participate in the program including animal health products, eartags, and labor are estimated at $8 to $12 per calf. Tripling your money is a pretty good return on investment!

The values shown above are average premiums per head. Highest premiums are received by 5 cwt to 7 cwt steers and 4 cwt to 6 cwt heifers. A producer that marketed 40 – 6 cwt steers through the VQA program received almost $1700 additional value to his production system.

Advantages:

• Low risk, moderate changes in management, modest return
• Most management decisions still under producer control

Challenges/costs:

• Calves must be marketed in tractor trailer load lots to maximize premiums; therefore, producers must work with and conform to other producers’ management in local area to reap benefits.
• Producers must have sufficient facilities and labor to accomplish procedures.
• A third party may need to verify procedures.
• Records must be kept according to program standards.
• Different marketing system needed for “out cattle” (i.e. too light muscled, too small, pinkeye, etc)

Product Specified Feeder Cattle Programs - This is a rather broad category that still allows producers to sell feeder cattle that meet specifications dictated by the program. Examples of these programs include breed specific (Angus Source®, Verified Hereford®, Smart Tag™ - Gelbvieh, Certified Red Angus, etc), “natural beef” (no hormones or antibiotics), certified organic, and breeder programs. Program requirements and premiums are highly variable among this group of programs.

Some require specific genetics such as breed association or breeder programs. Breeder programs refer to calf buy-back programs that sellers of commercial bulls offer their customers. Natural and organic programs dictate what can (or can’t) be given to calves including certain animal health products and feeds. Therefore, the nature of these programs automatically limits the number of producers that can participate.

Economic costs and benefits to these programs are less transparent than programs such as VQA. This does not mean these programs are not honest or don’t add value to the calves and the feeder calf producer’s operation. It simply means that producers considering these options need to be more market and production savvy to weigh the value of these programs. For example, producers in “natural” programs must weigh the increase in price per cwt offered by the program against the lighter calf sale weights by not using implants.

Advantages:

• Moderately low risk, few to moderate changes in management, variable return
• Most management decisions still under producer control, but may give up some decisions on genetics or breeding program.
• May know premium or discounts in advance
• Marketing program is planned in advance

Challenges/costs:

• Calving season and management must conform to program standards.
• Delivery of calves (where and when) dictated by program.
• For some programs, premiums are established by program not directly by market.
• Some programs may result in reduced weights of calves sold
• Records must be kept according to program standards.
• Knowledge of current cattle market and discounts may be needed to better understand advantages/disadvantages of program
• Different marketing system needed for “out cattle” (i.e. “wrong” genetics, treated with antibiotics, too light muscled, too small, pinkeye, etc)

Retained Ownership - The process of owning calves from birth or feeder cattle age through finishing is called retained ownership. By retaining ownership, producers gain the value of the cattle from weaning to finishing. However, they also incur the associated risks such as death loss, decrease in finished cattle price, and change in feed prices. Cattle are then sold directly to the packer either live or on a carcass basis.

There is greater risk with retained ownership that with value-added feeder cattle programs, but there is also an opportunity to increase returns to the operation. Retained ownership can add value to feeder cattle and the cow-calf operations when feeding cattle is profitable. However, it can also decrease returns to the cow-calf operation when conditions for feeding cattle are not favorable or cattle do not perform well in the feedlot.

The table below exemplifies the potential rewards and risks of retained ownership. This table summarizes the additional revenue added to the cow-calf operation by retained ownership through the VA Retained Ownership Program as compared to selling feeder calves on the graded feeder calf sales. Note that for producers in the top 1/3 of profitability there was considerable opportunity for profit. These cattle stayed healthy, grew well, and produced quality carcasses.

Advantages:

• May increase returns over selling feeder calves
• Most pre-feedlot management decisions still under producer control, but management and marketing decisions usually carried out by contract feeder.
• Selection for superior genetics may be rewarded
• May know premium or discounts in advance
• Marketing program is planned in advance

Challenges/costs:

• Moderate to high risk
• Part to all of income deferred until sale of finished cattle
• Need pen-sized lots (approx. 100 hd of 6 cwt calves); may need to partner with other operators (i.e. VA ROP)
• Most programs require specific pre-feedlot health programs
• Usually need to wean and background calves
• Different marketing system needed for “out cattle” (i.e. too small, pinkeye, unthrifty, etc)

July is an excellent time to consider marketing options for the calf crop. For producers with spring calving cows, this is the time of year to conduct mid-summer vaccinations and deworming. These management practices have the potential to add value as well as pounds to your calves. Fall calving herds can begin to consider a value-added marketing program before the calves hit the ground.

Next Month: Part 2.  Pasture to Plate Alliances, and Direct Marketing

Some useful links:

Certified feeder calf programs
http://vacattlemen.org/Marketing/Qassured.aspx
http://us.merial.com/producers/surehealth.asp
http://www.cph45.com/
http://www.selectvac.com/
http://animalscience.tamu.edu/ANSC/publications/beefpubs/vac_vaccine.pdf

Breed based programs
http://www.angussource.com/audiofiles/AngusSource_flash.htm
http://www.herefordverified.com/LoginIndex.aspx
http://www.gelbvieh.org/commercial_marketing.htm
http://redangus.org/marketing/feeder-calf-sale-schedule/

Natural beef programs
http://www.laurasleanbeefcattle.com/
http://www.localharvest.org/

Retained ownership
http://www.ext.vt.edu/news/periodicals/livestock/aps-05_08/aps-449.html
http://www.extension.iastate.edu/AgDM/livestock/pdf/b1-72.pdf

Disclaimer
Commercial products or programs are named in this article for informational purposes only. Virginia Cooperative Extension, Virginia Tech, do not endorse these products or programs and do not intend discrimination against other products or programs that also may be suitable.

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